NY Company's Contract Terms Draw Fire from Connecticut AG

By Bruce Raymond of Raymond Law Group LLC posted in Business Litigation on Wednesday, June 15, 2016.

In Connecticut, businesses may have their contracts "undone" and be forced to pay restitution if the contract contains unfair or deceptive terms and provisions. In a recent settlement, Ferrandino & Son, Inc. (F&S), a New York business, agreed to pay damages based on alleged unfair trade practices in a snow removal contract with Connecticut subcontractors. The contract laid out a payment arrangement involving a flat rate for snow removal services and a tiered bonus structure for snow removal amounts above a 30-year "average annual snowfall." The contract signed by each subcontractor included an exhibit listing the snowfall averages that would be used to calculate bonuses, however the express language of the contract required that bonuses be calculated based on 30-year "historic snowfall averages." According to the CT Attorney General (AG)'s office, the actual benchmark used for calculating the bonus structure "was not based on any industry standard or verifiable mathematical calculations of site specific historic snowfall data, and thus was not a valid 30 year snowfall average for that site." The snowfall averages listed in the contract were much higher than actual historic snowfall averages, and as a result, even when snowfall was higher than average, the subcontractors received lower compensation than if historic data had been used to calculate the bonuses.

Even though all parties agreed to the contract's terms with knowledge of the snowfall measurements in the attached exhibit, the AG's office maintained that the contract required the parties to use an objective measure of historic snowfall data instead of the inaccurate values contained in the contract. While the historic snowfall data in question was not confidential data available only to one party, but rather publicly available, verifiable, historic data, the AG's office relied on the allegation that F&S had made assertions that the snowfall data contained in the exhibit was historical and accurate, and that representing the exhibit as historic data was misleading and may constitute an unfair trade practice under Connecticut Unfair Trade Practices Act (CUTPA). The parties settled and signed an Assurance of Voluntary Compliance, in which F&S agreed to pay restitution to the subcontractors and a civil penalty, as well as to base future compensation on historic snowfall averages.

CUTPA is a broad law that covers a wide range of conduct, and while it is generally discussed in relation to consumers, the law applies to businesses as well. Department of Consumer Protection Commissioner Jonathan A. Harris stated in a press release on this settlement that "businesses in Connecticut must meet the highest ethical and legal standards, whether their customers are consumers or other businesses." There are two key takeaways from what happened here. The first is that claiming that data is historic, scientific, or otherwise factual when it is not based on an industry standard or verifiable mathematical calculations could result in a potential CUTPA violation. This is so even if the data is initially accepted by agreement by all parties, and especially when, as here, compliance with a contract's terms depends on that data. The second more general lesson is the broad scope of business transactions to which CUTPA can be applied, and that business owners should be sensitive to potential CUTPA violations at all stages of business dealings, not only with consumers but also when contracting with other businesses.